Comparing the expected annual costs, we see that Company A's offer is more cost-effective than Company B's offer.
Expected Annual Cost (Company A) < Expected Annual Cost (Company B) $12.99 < $56.25
analyze each company's offer to determine which one is more cost-effective for Mrs. James.
Company A:
Monthly fee: $12.99
Company B:
Repair fee: $75 per repair
To determine which company is more cost-effective, we need to calculate the expected annual cost for each company. The expected annual cost is the average cost of repairs over a year.
Expected Annual Cost for Company A:
The expected annual cost for Company A is simply the monthly fee since there is no charge per repair.
Expected Annual Cost = Monthly Fee = $12.99
Expected Annual Cost for Company B:
To calculate the expected annual cost for Company B, we need to consider the probability of each number of repairs and multiply it by the corresponding repair cost.
Expected Annual Cost = (Probability of 0 repairs) × (Repair cost for 0 repairs) +
(Probability of 1 repair) × (Repair cost for 1 repair) +
(Probability of 2 repairs) × (Repair cost for 2 repairs) +
(Probability of 3 repairs) × (Repair cost for 3 repairs)
Expected Annual Cost = (0.25) × ($0) + (0.32) × ($75) + (0.29) × ($75) + (0.14) × ($75)
Expected Annual Cost = $0 + $24 + $21.75 + $10.50
Expected Annual Cost = $56.25
complete the question
Let's analyze each company's offer to determine which one is more cost-effective for Mrs. James.
Company A:
Monthly fee: $12.99
Company B:
Repair fee: $75 per repair
To determine which company is more cost-effective, we need to calculate the expected annual cost for each company. The expected annual cost is the average cost of repairs over a year.